Why Generac Holdings Inc. Slumped This Morning

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Generac Holdings (NYSE: GNRC) slipped 4% this morning after Bank of America/Merrill Lynch downgraded the power generation equipment company from buy to neutral.

So what: Along with the downgrade, analyst Ross Gilardi lowered his price target to $53 (from $65), representing about 9% worth of upside to yesterday's close. So while contrarian traders might be attracted to Generac's price weakness in recent weeks, Gilardi's call could reflect a sense on Wall Street that the company's seasonal pickup prospects are just too limited to trigger a significant rebound.

Now what: Merrill cut its earnings-per-share estimates for Generac by 8%-9%; estimates are now 5% below Wall Street's view. "Our survey suggests limited seasonal demand recovery for standby generators in Q2, undermining our confidence in the 2H14," said Gilardi. Given Merrill's solid call-making track record -- currently ranked in the top 20% of our CAPS community -- Generac bulls might want to at least manage their short-term expectations.

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